The following discussion relates toApache Corporation (Apache or the Company) and its consolidated subsidiaries and should be read together in conjunction with the Company's Consolidated Financial Statements and accompanying notes included in Part IV, Item 15 of this Annual Report on Form 10-K, and the risk factors and related information set forth in Part I, Item 1A and Part II, Item 7A of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K are incorporated by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 (filed with theSEC onFebruary 28, 2020 ). OverviewApache Corporation , aDelaware corporation formed in 1954, is an independent energy company that explores for, develops, and produces natural gas, crude oil, and NGLs. The Company's upstream business currently has exploration and production operations in three geographic areas: theU.S. ,Egypt , and offshore theU.K. in theNorth Sea (North Sea ). Apache also has active exploration and planned appraisal operations ongoing in Suriname, as well as interests in other international locations that may, over time, result in reportable discoveries and development opportunities. Apache's midstream business is operated byAltus Midstream Company (Nasdaq: ALTM) through its subsidiaryAltus Midstream LP (collectively, Altus). Altus owns, develops, and operates a midstream energy asset network in thePermian Basin ofWest Texas . Apache's mission is to grow in an innovative, safe, environmentally responsible, and profitable manner for the long-term benefit of its stakeholders. Apache is focused on rigorous portfolio management, disciplined financial structure, and optimization of returns. The global economy and the energy industry have been deeply impacted by the effects of the COVID-19 pandemic and related third-party actions. Uncertainty in the oil markets and the negative demand implications from the COVID-19 pandemic continue to impact oil supply and demand. As with previous changes in a volatile price environment, Apache has continued to respond quickly and decisively, taking the following actions: •Establishing and implementing a wide range of fit-for-purpose protocols and procedures to ensure a safe and productive work environment across the Company's diversified global onshore and offshore operations. •Reducing upstream capital investments by over 50 percent from the comparative prior-year period, including eliminating nearly allU.S. drilling and completion activity byMay 2020 and reducing planned activity inEgypt and theNorth Sea . •Decreasing the Company's dividend by 90 percent beginning in the first quarter of 2020, preserving approximately$340 million of cash flow on an annualized basis and strengthening liquidity. •Completing an organizational redesign focused on centralizing certain operational activities in an effort to capture greater efficiencies, achieving an estimated cost savings of$400 million annually. •Conducting, on a continuous basis, price sensitivity analyses and operational evaluations of producing wells across the Company's portfolio that allow for a methodical and integrated approach to production shut-ins and curtailments with a focus on preserving cash flows in a distressed price environment and protecting the Company's assets. The Company remains committed to its longer-term objectives: (1) to maintain a balanced asset portfolio, including advancement of ongoing exploration and appraisal activities offshore Suriname; (2) to invest for long-term returns over production growth; and (3) to budget conservatively to generate excess cash flow that can be directed on a priority basis to debt reduction. The Company closely monitors hydrocarbon pricing fundamentals and will reallocate capital as part of its ongoing planning process. For additional detail on the Company's forward capital investment outlook, refer to "Capital and Operational Outlook" below. 33 -------------------------------------------------------------------------------- During 2020, Apache reported a net loss attributable to common stock of$4.9 billion , or$12.86 per share, compared to a net loss of$3.6 billion , or$9.43 per share, in 2019. The results for both periods were driven by asset impairments. In 2020, the Company recorded impairments totaling$4.5 billion in connection with fair value assessments stemming from the global crude oil price collapse on lower demand and economic activity resulting from the impacts of COVID-19 and related third-party actions. The Company recorded asset impairments during 2019 of$2.9 billion , primarily related to a material reduction in planned investment at Apache'sAlpine High development that triggered fair value assessments of the Company's upstreamAlpine High proved properties and Altus' associated midstream assets. Apache's capital spending for the year aligned with its$1.4 billion of cash from operating activities generated in 2020, which was$1.5 billion or 52 percent lower than the prior year. Apache's lower operating cash flows for 2020 were driven by lower crude oil prices and associated revenues. The reduced capital investment was the result of proactive measures taken by the Company to adjust its capital budget to reflect volatile commodity prices and anticipated operating cash flows. Apache ended the year with a slightly higher cash balance of$262 million and comparable debt levels to the prior year-end, while actively managing its debt positions to reduce near-term debt maturities. Operational Highlights Key operational highlights for the year include:United States •Equivalent production from the Company'sU.S. assets, which accounted for 58 percent of total production during 2020, decreased nine percent from 2019 to 2020 as a result of reduced activity in response to commodity price weakness. •The Company began 2020 with seven operated drilling rigs and three operated completion crews in thePermian Basin , which were both quickly and safely reduced to zero byMay 2020 in response to commodity price weakness. •In response to completion cost reductions when compared to the first quarter of 2020, the Company reinstated two operated completion crews in thePermian Basin during the fourth quarter of 2020 to begin completing its backlog of drilled but uncompleted well inventory. International •Egypt gross equivalent production decreased 13 percent and net production decreased 9 percent from 2019 primarily a result of natural decline given reduced drilling activity during the year. The Company continues to build and enhance its robust drilling inventory inEgypt , supplemented with recent seismic acquisitions and new play concept evaluations, on both new and existing acreage. As a result, theEgypt asset achieved a new record within theMatruh Basin with the Herunefer E-2 well, which encountered 555 feet of net pay. •TheNorth Sea maintained two drilling rigs during 2020 with notable discoveries at the Storr and Garten fields contributing to the two percent increase in production from 2019 to 2020. In addition, during the fourth quarter of 2020, the Company's Losgann well confirmed a Tertiary oil discovery, offsetting other operator Norwegian discoveries in the area. In combination with two previous undeveloped Apache discoveries in the Tertiary, Losgann will add to a comprehensive development opportunity. •InApril 2020 , Apache announced a significant oil discovery at the Sapakara West-1 well drilled offshore Suriname on Block 58. Sapakara West-1 was drilled to a depth of approximately 6,300 meters (approximately 20,700 feet) and successfully tested for the presence of hydrocarbons in multiple stacked targets in the upper Cretaceous-aged Campanian and Santonian intervals. This follows theJanuary 2020 announcement of a discovery at the Maka Central-1 well. During 2020, the Company submitted a plan of appraisal for both of these discoveries. Apache holds a 50 percent working interest in Block 58. •InJuly 2020 , Apache announced a major oil discovery at the Kwaskwasi-1 well drilled offshore Suriname on Block 58. Kwaskwasi-1 was drilled to a depth of approximately 6,645 meters (approximately 21,800 feet) and successfully tested for the presence of hydrocarbons in multiple stacked targets in the upper Cretaceous-aged Campanian and Santonian intervals. Fluid samples and test results indicate at least 278 meters (approximately 912 feet) of net oil and oil/gas condensate pay in two intervals. This was the third consecutive oil discovery offshore Suriname. 34 -------------------------------------------------------------------------------- •In late 2020, the Company commenced drilling a fourth exploration well in the block at the Keskesi prospect. InJanuary 2021 , Apache and Total S.A announced a discovery that confirmed oil in the eastern portion of the block. The Keskesi East-1 well is continuing to drill to deeper targets. Apache is transferring operatorship of Block 58 to its partner, Total S.A, which will conduct all exploration and appraisal activities subsequent to completion of drilling operations at Keskesi. For a more detailed discussion related to the Company's various geographic segments, refer to "Upstream Exploration and Production Properties-Operating Areas" set forth in Part I, Item 1 and 2 of this Annual Report on Form 10-K. Acquisition and Divestiture Activity Over Apache's history, the Company has repeatedly demonstrated its ability to capitalize quickly and decisively on changes in its industry and economic conditions. A key component of this strategy is to continuously review and optimize Apache's portfolio of assets in response to these changes. Most recently, Apache has completed a series of divestitures designed to monetize nonstrategic assets and enhance Apache's portfolio in order to allocate resources to more impactful exploration and development opportunities. These divestitures include: •U.S. Leasehold Divestitures & Other During 2020, the Company completed the sale of certain non-core producing assets and leasehold acreage, primarily in thePermian Basin , in multiple transactions for total cash proceeds of$87 million . The Company also completed certain leasehold and property acquisitions, primarily in thePermian Basin , for total cash consideration of$4 million . •Suriname Joint Venture Agreement InDecember 2019 , Apache entered into a joint venture agreement with Total S.A. to explore and develop Block 58 offshore Suriname. Under the terms of the agreement, Apache and Total S.A. each hold a 50 percent working interest in Block 58. Apache operated the drilling of the first four wells and subsequently transferred operatorship of Block 58 to Total S.A. In connection with the agreement, Apache received$100 million upon closing in the fourth quarter of 2019 and$79 million upon satisfying certain closing conditions in the first quarter of 2020 for reimbursement of 50 percent of all costs incurred on Block 58 as ofDecember 31, 2019 . Apache will also receive various other forms of consideration, including$5.0 billion of cash carry on Apache's first$7.5 billion of appraisal and development capital, 25 percent cash carry on all of Apache's appraisal and development capital beyond the first$7.5 billion , a$75 million cash payment upon achieving first oil production, and future contingent royalty payments from successful joint development projects. •Midcontinent/Gulf Coast Divestiture In the second quarter of 2019, Apache completed the sale of non-core, gas-weighted assets in the Woodford-SCOOP and STACK plays for aggregate cash proceeds of approximately$223 million . In the third quarter of 2019, Apache completed the sale of non-core, gas-weighted assets in the westernAnadarko Basin ofOklahoma andTexas for aggregate cash proceeds of approximately$322 million and the assumption of asset retirement obligations of$49 million . •U.S. Leasehold Divestitures & Other During 2019, the Company also completed the sale of certain other non-core producing assets, gathering, processing, and transmission (GPT) assets, and leasehold acreage, primarily in thePermian Basin , in multiple transactions for total cash proceeds of$73 million . For detailed information regarding Apache's acquisitions and divestitures, refer to Note 2-Acquisitions and Divestitures in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. 35 -------------------------------------------------------------------------------- Results of Operations Oil and Gas Production Revenues Apache's oil and gas production revenues and respective contribution to total revenues by country are as follows: For the Year Ended December 31, 2020 2019 2018 $ Value % Contribution $ Value % Contribution $ Value % Contribution ($ in millions) Oil Revenues: United States$ 1,209 39 %$ 2,098 40 %$ 2,271 39 % Egypt(1) 1,102 35 % 1,969 38 % 2,396 41 % North Sea 795 26 % 1,163 22 % 1,179 20 % Total(1)$ 3,106 100 %$ 5,230 100 %$ 5,846 100 % Natural Gas Revenues: United States$ 251 42 %$ 293 43 %$ 458 50 % Egypt(1) 280 47 % 295 44 % 339 37 % North Sea 67 11 % 90 13 % 122 13 % Total(1)$ 598 100 %$ 678 100 %$ 919 100 % NGL Revenues: United States$ 304 91 %$ 372 91 %$ 550 94 % Egypt(1) 8 3 % 12 3 % 13 2 % North Sea 21 6 % 23 6 % 20 4 % Total(1)$ 333 100 %$ 407 100 %$ 583 100 % Oil and Gas Revenues: United States$ 1,764 44 %$ 2,763 44 %$ 3,279 45 % Egypt(1) 1,390 34 % 2,276 36 % 2,748 37 % North Sea 883 22 % 1,276 20 % 1,321 18 % Total(1)$ 4,037 100 %$ 6,315 100 %$ 7,348 100 %
(1)Includes revenues attributable to a noncontrolling interest in
36 --------------------------------------------------------------------------------
Production
The following table presents production volumes by country:
For the Year Ended
Increase Increase 2020 (Decrease) 2019 (Decrease) 2018 Oil Volumes - b/d: United States 88,249 (16)% 105,051 - 104,800 Egypt(1)(2) 75,384 (11)% 84,617 (10)% 93,656 North Sea 50,386 1% 49,746 6% 46,953 Total 214,019 (11)% 239,414 (2)% 245,409 Natural Gas Volumes - Mcf/d: United States 561,731 (12)% 639,580 8% 593,254 Egypt(1)(2) 274,175 (4)% 285,972 (12)% 326,811 North Sea 57,464 5% 54,642 20% 45,466 Total 893,370 (9)% 980,194 2% 965,531 NGL Volumes - b/d: United States 74,136 8% 68,381 19% 57,451 Egypt(1)(2) 754 (19)% 931 1% 923 North Sea 1,936 11% 1,739 46% 1,189 Total 76,826 8% 71,051 19% 59,563 BOE per day:(3) United States 256,007 (9)% 280,029 7% 261,126 Egypt(1)(2) 121,834 (9)% 133,209 (11)% 149,048 North Sea(4) 61,899 2% 60,592 9% 55,719 Total 439,740 (7)% 473,830 2% 465,893
(1)Gross oil, natural gas, and NGL production in
2020 2019 2018 Oil (b/d) 164,104 193,886 206,378 Natural Gas (Mcf/d) 641,069 708,682 769,468 NGL (b/d) 1,429 1,722 1,502 (2)Includes net production volumes per day attributable to a noncontrolling interest inEgypt of: 2020 2019 2018 Oil (b/d) 25,206 28,220 31,240 Natural Gas (Mcf/d) 91,540 95,539 109,169 NGL (b/d) 251 310 308 (3)The table shows production on a boe basis in which natural gas is converted to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This ratio is not reflective of the price ratio between the two products. (4)Average sales volumes from theNorth Sea were 62,157 boe/d, 59,797 boe/d, and 55,568 boe/d for 2020, 2019, and 2018, respectively. Sales volumes may vary from production volumes as a result of the timing of liftings in the Beryl field. 37 --------------------------------------------------------------------------------
Pricing
The following table presents pricing information by country:
For
the Year Ended
Increase Increase 2020 (Decrease) 2019 (Decrease) 2018 Average Oil Price - Per barrel: United States$ 37.42 (32)%$ 54.71 (8)%$ 59.36 Egypt 39.95 (37)% 63.76 (9)% 70.09 North Sea 42.88 (34)% 65.10 (6)% 69.02 Total 39.60 (34)% 60.05 (8)% 65.30 Average Natural Gas Price - Per Mcf: United States$ 1.22 (3)%$ 1.26 (41)%$ 2.12 Egypt 2.79 (1)% 2.83 - 2.84 North Sea 3.19 (29)% 4.48 (39)% 7.33 Total 1.83 (4)% 1.90 (27)% 2.61 Average NGL Price - Per barrel: United States$ 11.21 (25)%$ 14.95 (43)%$ 26.28 Egypt 27.83 (18)% 33.87 (14)% 39.17 North Sea 29.73 (19)% 36.83 (20)% 45.84 Total 11.84 (25)% 15.74 (41)% 26.87 Crude Oil Prices A substantial portion of our crude oil production is sold at prevailing market prices, which fluctuate in response to many factors that are outside of the Company's control. Average realized crude oil prices for 2020 were down 34 percent compared to 2019, a direct result of the decreasing benchmark oil prices over the past year resulting from the COVID-19 pandemic and related third-party actions. Crude oil prices realized in 2020 averaged$39.60 per barrel. Continued volatility in the commodity price environment reinforces the importance of the Company's asset portfolio. While the market price received for natural gas varies among geographic areas, crude oil tends to trade within a global market. Price movements for all types and grades of crude oil generally move in the same direction. Natural Gas Prices Natural gas, which currently has a limited global transportation system, is subject to price variances based on local supply and demand conditions. Apache's primary markets includeNorth America ,Egypt , and the U.K. An overview of the market conditions in the Company's primary gas-producing regions follows: •The Company predominantly sells its natural gas production withinthe United States , including toU.S. LNG export facilities, although a portion is sold to markets inMexico . Most of the Company'sU.S. natural gas is sold on a monthly or daily basis at either monthly or daily index-based prices. The Company'sU.S. realizations averaged$1.22 per Mcf in 2020, down from$1.26 per Mcf in 2019. •In Egypt, the Company's natural gas is sold toEgyptian General Petroleum Corporation (EGPC), primarily under an industry-pricing formula, a sliding scale based on Dated Brent crude oil with a minimum of$1.50 per MMBtu and a maximum of$2.65 per MMBtu, plus an upward adjustment for liquids content. Overall, the Company'sEgypt operations averaged$2.79 per Mcf in 2020, a 1 percent decrease from 2019. •Natural gas from the North Sea Beryl field is processed through the SAGE gas plant. The gas is sold to a third party at the St. Fergus entry point of the national grid on aNational Balancing Point index price basis. The Company'sNorth Sea operations averaged$3.19 per Mcf in 2020, a 29 percent decrease from an average of$4.48 per Mcf in 2019. 38 -------------------------------------------------------------------------------- NGL Prices Apache'sU.S. NGL production, which accounts for 96 percent of the Company's total 2020 NGL production, is sold under contracts with prices at market indices based onGulf Coast supply and demand conditions, less the costs for transportation and fractionation, or on a weighted-average sales price received by the purchaser. Crude Oil Revenues Crude oil revenues for 2020 totaled$3.1 billion , a$2.1 billion decrease from the 2019 total of$5.2 billion . A 34 percent decrease in average realized prices reduced 2020 revenues by$1.8 billion compared to 2019, while 11 percent lower average daily production decreased revenues by$343 million . Average daily production in 2020 was 214 Mb/d, with prices averaging$39.60 per barrel. Crude oil sales accounted for 77 percent of the Company's 2020 oil and gas production revenues and 49 percent of its worldwide production. The Company's worldwide crude oil production decreased 25 Mb/d compared to 2019, primarily driven by natural decline in theU.S. andEgypt , a result of reduced activity in response to commodity price weakness. Production decreases for 2020 were partially offset by the Storr and Garten exploration discoveries in theNorth Sea coming on-line in late 2019 and early 2020, respectively. Natural Gas Revenues Natural gas revenues for 2020 totaled$598 million , an$80 million decrease from the 2019 total of$678 million . A 4 percent decrease in average realized prices reduced 2020 revenues by$24 million compared to 2019, while 9 percent lower average daily production decreased revenues by$56 million . Average daily production in 2020 was 893 MMcf/d, with prices averaging$1.83 per Mcf. Natural gas sales accounted for 15 percent of the Company's 2020 oil and gas production revenues and 34 percent of its worldwide production. The Company's worldwide natural gas production decreased 87 MMcf/d compared to 2019, primarily a result of the sale of the Company's Woodford-SCOOP and STACK plays and westernAnadarko Basin assets in theU.S. in 2019 and natural decline in theU.S. andEgypt resulting from reduced activity levels. NGL Revenues NGL revenues for 2020 totaled$333 million , a$74 million decrease from the 2019 total of$407 million . A 25 percent decrease in average realized prices reduced 2020 revenues by$101 million compared to 2019, while 8 percent higher average daily production increased revenues by$27 million . Average daily production in 2020 was 77 Mb/d, with prices averaging$11.84 per barrel. NGL sales accounted for 8 percent of Apache's 2020 oil and gas production revenues and 17 percent of its worldwide production. The Company's worldwide NGL production increased 6 Mb/d compared to 2019, primarily a result of theAlpine High development in recent years. Altus Midstream Revenues Apache beneficially owns approximately 79 percent of Altus' outstanding voting common stock. Altus owns and operates a midstream energy asset network in thePermian Basin ofWest Texas primarily to service Apache's production from itsAlpine High resource play, which commenced production inMay 2017 .Altus Midstream generates revenue by providing fee-based natural gas gathering, compression, processing, and transmission services. For the years endedDecember 31, 2020 and 2019,Altus Midstream's services revenues generated through its fee-based contractual arrangements with Apache totaled$145 million and$136 million , respectively. These affiliated revenues are eliminated upon consolidation. The increase compared to the prior year was primarily driven by higher throughput of rich natural gas volumes atAlpine High due to increased capacity as a result of three cryogenic processing trains coming on line starting in the second quarter of 2019, partially offset by lower throughput of lean natural gas volumes. Purchased Oil and Gas Sales Purchased oil and gas sales increased$222 million for the year endedDecember 31, 2020 from$176 million to$398 million . Purchased oil and gas sales were primarily offset by associated purchase costs of$357 million and$142 million for the years endedDecember 31, 2020 and 2019, respectively. 39 -------------------------------------------------------------------------------- Operating Expenses The table below presents a comparison of the Company's operating expenses for the years endedDecember 31, 2020 , 2019, and 2018. All operating expenses include costs attributable to a noncontrolling interest inEgypt andAltus .
For the Year Ended
2020 2019 2018 (In millions) Lease operating expenses$ 1,127 $ 1,447 $ 1,439 Gathering, processing, and transmission 274 306 348 Purchased oil and gas costs 357 142 340 Taxes other than income 123 207 215 Exploration 274 805 503 General and administrative 290 406 431 Transaction, reorganization, and separation 54 50 28 Depreciation, depletion, and amortization: Oil and gas property and equipment 1,643 2,512 2,265 Gathering, processing, and transmission assets 76 105 83 Other assets 53 63 57 Asset retirement obligation accretion 109 107 108 Impairments 4,501 2,949 511 Financing costs, net 267 462 478 Lease Operating Expenses (LOE)LOE includes several key components, such as direct operating costs, repairs and maintenance, and workover costs. Direct operating costs generally trend with commodity prices and are impacted by the type of commodity produced and the location of properties (i.e., offshore, onshore, remote locations, etc.). Fluctuations in commodity prices impact operating cost elements both directly and indirectly. They directly impact costs such as power, fuel, and chemicals, which are commodity price based. Commodity prices also affect industry activity and demand, thus indirectly impacting the cost of items such as rig rates, labor, boats, helicopters, materials, and supplies. Crude oil, which accounted for 49 percent of the Company's total 2020 production, is inherently more expensive to produce than natural gas. Repair and maintenance costs are typically higher on offshore properties. During 2020, LOE decreased$320 million , or 22 percent, compared to 2019. On a per-boe basis, LOE decreased$1.38 , or 16 percent, compared to 2019, from$8.38 per boe to$7.00 per boe, driven by reduced activity, labor costs, and fuel costs associated with lower commodity prices, the Company's organizational redesign, and other cost cutting efforts. In addition, absolute dollar costs are lower in the current year as a result of the divestitures of the Company's Woodford-SCOOP and STACK plays and westernAnadarko Basin assets in theU.S. in the third quarter of 2019. Gathering, Processing, and Transmission (GPT) GPT expenses include amounts paid to third-party carriers and toAltus Midstream for gathering and transmission services for Apache's upstream natural gas production associated with itsAlpine High play. GPT expenses also include midstream operating costs incurred byAltus Midstream . The following table presents a summary of these expenses: For the Year Ended December 31, 2020 2019 2018 (In millions) Third-party processing and transmission costs$ 236 $ 250 $ 294 Midstream service affiliate costs 143 134 77 Upstream processing and transmission costs 379 384 371 Midstream operating expenses 38 56 54 Intersegment eliminations (143) (134) (77) Total Gathering, processing, and transmission$ 274
40 -------------------------------------------------------------------------------- GPT costs decreased$32 million compared to 2019. Third-party processing and transmission costs decreased$14 million , primarily driven by a decrease in contracted pricing and the Company's sale of non-core assets inOklahoma andTexas . Midstream service affiliate costs increased$9 million compared to 2019, primarily driven by higher throughput of rich natural gas volumes atAlpine High . Midstream operating expenses, incurred primarily byAltus , decreased$18 million compared to 2019, primarily driven by increased operational efficiency as a result of transitioning from mechanical refrigeration units toAltus' centralized Diamond cryogenic complex starting in the second quarter of 2019. The transition resulted in decreases in employee-related costs, contract labor, supplies expenses, and equipment rentals. Purchased Oil and Gas Costs Purchased oil and gas costs increased$215 million compared to 2019, and were more than offset by associated sales totaling$398 million for the year ended 2020. Taxes Other Than Income Taxes other than income primarily consist of severance taxes on onshore properties and in state waters off the coast of theU.S. and ad valorem taxes onU.S. properties. Severance taxes are generally based on a percentage of oil and gas production revenues. The Company is also subject to a variety of other taxes, includingU.S. franchise taxes. Taxes other than income decreased$84 million compared to 2019, primarily from lower severance taxes driven by lower commodity prices and the divestiture of the Company's non-core assets inOklahoma andTexas . Exploration Expenses Exploration expenses include unproved leasehold impairments, exploration dry hole expense, geological and geophysical expenses, and the costs of maintaining and retaining unproved leasehold properties. The following table presents a summary of these expenses: For the Year Ended December 31, 2020 2019 2018 (In millions)
Unproved leasehold impairments$ 101 $ 619 $ 214 Dry hole expenses 110 57 137 Geological and geophysical expenses 20 59 55 Exploration overhead and other 43 70 97 Total Exploration$ 274 $ 805 $ 503 Exploration expenses decreased$531 million compared to 2019. Unproved leasehold impairments decreased$518 million , driven by higher leasehold impairments in 2019 associated with the Company's decision to reallocate capital away from planned investment in theAlpine High play. Dry hole expense increased$53 million compared to 2019, primarily related to exploration wells in theU.S. ,Egypt , and theNorth Sea . Geological and geophysical expenses decreased$39 million and exploration overhead and other expenses decreased$27 million . The 2019 period reflects large-scale seismic surveys inEgypt and higher delay rentals in theU.S. General and Administrative (G&A) Expenses G&A expenses decreased$116 million compared to 2019, primarily related to cost-cutting measures associated with the Company's organizational redesign efforts, as well as lower cash-based stock compensation expense resulting from a decrease in the Company's stock price and a reduced payout of performance awards. Transaction, Reorganization, and Separation (TRS) Costs TRS costs increased$4 million compared to 2019, driven by costs associated with the Company's reorganization efforts initiated in the second half of 2019. 41 -------------------------------------------------------------------------------- In recent years, the Company has streamlined its portfolio through strategic divestitures and centralized certain operational activities in an effort to capture greater efficiencies and cost savings through shared services. During the second half of 2019, management initiated a comprehensive redesign of Apache's organizational structure and operations that it believes will better position the Company to be competitive for the long-term and further reduce recurring costs. Reorganization efforts were substantially completed in 2020, and as a result of the reorganization, Apache has achieved an estimated cost savings of more than$400 million annually. Depreciation, Depletion and Amortization (DD&A) DD&A expenses on the Company's oil and gas property for the year endedDecember 31, 2020 , decreased$869 million compared to 2019. The Company's oil and gas property DD&A rate decreased$4.35 per boe in 2020 compared to 2019, from$14.55 per boe to$10.20 per boe. The decrease was driven by lower production volumes and lower asset property balances associated with proved property impairments recorded in the first quarter of 2020 and in the fourth quarter of 2019. DD&A expense on the Company's GPT depreciation decreased$29 million compared to 2019, driven by impairment charges recorded against the carrying value ofAltus' GPT facilities in the fourth quarter of 2019. Impairments During 2020, the Company recorded asset impairments in connection with fair value assessments totaling$4.5 billion , including$4.3 billion for oil and gas proved properties in theU.S ,Egypt , and theNorth Sea ,$68 million for GPT facilities inEgypt ,$87 million for goodwill inEgypt , and$27 million for inventory and other miscellaneous assets, including lease assets and charges for the early termination of drilling rig leases. During 2019, the Company recorded asset impairments totaling$2.9 billion in connection with fair value assessments, including$1.5 billion for oil and gas proved properties in theU.S. primarily inAlpine High ,$1.3 billion impairment of GPT facilities primarily in theAltus Midstream reporting segment,$149 million on divested unproved properties and leasehold acreage in the westernAnadarko Basin inOklahoma andTexas , and$21 million of inventory and other miscellaneous assets, including office leasehold impairments from Apache's announcement to close itsSan Antonio regional office. The impairments forAlpine High andAltus Midstream were associated with the Company's fourth quarter 2019 capital plan allocation decision to materially reduce planned investment in theAlpine High play. The following table presents a summary of asset impairments recorded for 2020, 2019, and 2018: For the Year Ended December 31, 2020 2019 2018 (In millions) Oil and gas proved property$ 4,319 $ 1,484 $ 328 GPT facilities 68 1,295 56 Equity method investment - - 113 Divested unproved properties and leasehold - 149 10 Goodwill 87 - - Inventory and other 27 21 4 Total Impairments$ 4,501 $ 2,949 $ 511 Financing Costs, Net Financing costs incurred during the period comprised the following: For the Year Ended December 31, 2020 2019 2018 (In millions) Interest expense$ 438 $ 430 $ 441 Amortization of debt issuance costs 8 7 9 Capitalized interest (12) (37) (44) Loss (gain) on extinguishment of debt (160) 75 94 Interest income (7) (13) (22) Total Financing costs, net$ 267 $ 462 $ 478 42
-------------------------------------------------------------------------------- Net financing costs decreased$195 million compared to 2019, primarily the result of a$160 million gain on extinguishment of debt during 2020 compared to a$75 million loss on extinguishment of debt during 2019. In addition, capitalized interest decreased in the current year as a result of lower drilling activity and construction activity atAlpine High . Provision for Income Taxes Income tax expense decreased$610 million from$674 million during 2019 to$64 million during 2020. The Company's year-to-date 2020 effective income tax rate was primarily impacted by oil and gas asset impairments, a goodwill impairment, and an increase in the amount of valuation allowance against itsU.S. deferred tax assets. The Company's year-to-date 2019 effective income tax rate was primarily impacted by an increase in the amount of valuation allowance against itsU.S. deferred tax assets. The Company recorded a full valuation allowance against itsU.S. net deferred tax assets and will continue to maintain a full valuation allowance on itsU.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. For additional information regarding income taxes, refer to Note 10-Income Taxes in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Apache and its subsidiaries are subject toU.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. The Company's tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. The Company is currently under audit by the Internal Revenue Service (IRS) for the 2014-2017 tax years and is also under audit in various states and foreign jurisdictions as part of its normal course of business. Capital and Operational Outlook The Company continues to prudently manage its capital program against a volatile price environment and the prolonged effects of the COVID-19 pandemic. In response to the current crises, Apache's immediate course of action has been to actively reduce its cost structure, protect its balance sheet, and manage operations to preserve cash flow. The Company plans to maintain a conservative investment approach into 2021, having announced an upstream capital program of$1.1 billion . The program consists of approximately$900 million for development activities and approximately$200 million for exploration, predominantly in Suriname. The 2021 capital program assumes an average WTI price of$45 per barrel and aHenry Hub natural gas price of$3.00 per Mcf. In 2020, a higher percentage of development capital was directed toward international projects that generate better returns in a lower price environment. With the improvement in oil prices, the Company is returning to a modest level of activity in theU.S. Under the capital budget for 2021, activity includes: •continuing to advance exploratory and appraisal programs in Suriname under the terms of the Company's joint venture with Total S.A.; •running one rig in thePermian Basin , with the expectation to add a second rig in the middle of the year, while resuming completion activity for its previously drilled but uncompleted well inventory in response to significantly lower service costs; •continuing to run a five rig drilling program inEgypt with the ability to quickly flex spending as conditions warrant; and •maintaining a capital program in theNorth Sea relatively unchanged from the prior year with one floating rig and one platform crew. The Company's proactive reduction in capital spending in 2020 directly impacted global oil volumes which decreased by 17 percent from the fourth quarter of 2019 to the fourth quarter of 2020. Based on its 2021 upstream investment plan and allocation, the Company is projecting a more moderate decline of one percent for the comparable 2021 period. Forecasting into 2022 and future years, Apache's goal is to establish a development capital investment budget that will, at a minimum, at least sustain production volumes for the longer-term. Apache's strategic approach and multi-year outlook prioritizes retaining cash flow to reduce outstanding debt, focusing on long-term returns over short-term growth, aggressively managing its cost structure, and advancing exploration and appraisal activities in Suriname. 43 -------------------------------------------------------------------------------- The Company's diversified global portfolio provides the ability to quickly optimize capital allocation as market conditions change. The current crisis, however, is still evolving and may become more severe and complex. As a result, the COVID-19 pandemic may still materially and adversely affect Apache's results in a manner that is either not currently known or that the Company does not currently consider to be a significant risk to its business. For additional information about the business risks relating to the COVID-19 pandemic and related governmental actions, refer to Part I, Item 1A-Risk Factors of this Annual Report on Form 10-K. Separate from the Company's upstream oil and gas activities, capital spending forAltus' gathering and processing assets totaled$28 million in 2020, down from$327 million in 2019 when a majority of the midstream infrastructure construction was completed.Altus management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service Apache's production fromAlpine High and any third-party customers. As such, remaining capital requirements for its existing infrastructure assets during 2021 and 2022 are anticipated to be minimal. Additionally, during the years endedDecember 31, 2020 and 2019,Altus made cash contributions totaling$327 million and$501 million , respectively, for its equity interests in the following Equity Method Interest Pipelines: •16 percent in the Gulf Coast Express natural gas pipeline (GCX); •15 percent in the EPIC crude pipeline (EPIC); •an approximate 26.7 percent in thePermian Highway natural gas pipeline (PHP); and •33 percent in the Shin Oak NGL pipeline (Shin Oak ).Altus estimates it will incur approximately$30 million of additional capital contributions during 2021 for its equity interest associated with the commissioning and remaining construction costs in the Equity Method Interest Pipelines, primarily associated with PHP. During 2020,Altus' primary sources of cash were borrowings under the revolving credit facility, cash generated from operations, distributions from the Equity Method Interest Pipelines, and proceeds from the sale of assets. Based onAltus' current financial plan and related assumptions, it believes that cash from operations, a reduced capital program for its midstream infrastructure, and distributions from equity method interests will generate cash flows significantly in excess of capital expenditures that will provide sufficient cash to fund its planned dividend program during 2021. For further information on the Equity Method Interest Pipelines, refer to Note 6 -Equity Method Interests in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Capital Resources and Liquidity Operating cash flows are the Company's primary source of liquidity. Apache's operating cash flows, both in the short-term and the long-term, are impacted by highly volatile oil and natural gas prices, as well as costs and sales volumes. Significant changes in commodity prices impact Apache's revenues, earnings and cash flows. These changes potentially impact Apache's liquidity if costs do not trend with changes in commodity prices. Historically, costs have trended with commodity prices, albeit on a lag. Sales volumes also impact cash flows; however, they have a less volatile impact in the short term. Apache's long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success of Apache's drilling program and its ability to add reserves economically. Changes in commodity prices also impact estimated quantities of proved reserves. For the year endedDecember 31, 2020 , Apache recognized negative reserve revisions of approximately 7 percent of its year-end 2019 estimated proved reserves as a result of lower prices. The Company's estimates of proved reserves, proved developed reserves, and PUD reserves as ofDecember 31, 2020 , 2019, and 2018, changes in estimated proved reserves during the last three years, and estimates of future net cash flows from proved reserves are contained in Note 18-Supplemental Oil and Gas Disclosures (Unaudited)
in
the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Combined with proactive measures to adjust its capital budget, decrease its dividend, protect further downside price risk through entering into new hedge positions, and reduce its operating cost structure in the current volatile commodity price environment, Apache believes the liquidity and capital resource alternatives available to the Company will be adequate to fund its operations and provide flexibility until commodity prices and industry conditions improve. This includes supporting the Company's capital development program, repayment of debt maturities, payment of dividends, and any amount that may ultimately be paid in connection with commitments and contingencies. 44 -------------------------------------------------------------------------------- The Company may also elect to utilize available cash on hand, committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the sale of nonstrategic assets for all other liquidity and capital resource needs. For additional information, please see Part I, Items 1 and 2-Business and Properties and Part I, Item 1A-Risk Factors of this Annual Report on Form 10-K. Sources and Uses of Cash The following table presents the sources and uses of the Company's cash and cash equivalents for the years presented: For the Year Ended December 31, 2020 2019 2018 (In millions) Sources of Cash and Cash Equivalents: Net cash provided by operating activities$ 1,388 $ 2,867 $ 3,777 Proceeds from Apache credit facility, net 150 - - Proceeds from Altus credit facility, net 228 396 - Proceeds from Altus transaction - - 628 Proceeds from asset divestitures 166 718 138 Fixed-rate debt borrowings 1,238 989 992 Redeemable noncontrolling interest - Altus Preferred Unit limited partners - 611 - 3,170 5,581 5,535 Uses of Cash and Cash Equivalents: Additions to oil and gas property(1)$ 1,270 $ 2,594 $ 3,190
Additions to
28 327 581 Leasehold and property acquisitions 4 40 133 Contributions to Altus equity method interests 327 501 - Acquisition of Altus equity method interests - 671 91 Payments on fixed-rate debt 1,243 1,150 1,370 Dividends paid 123 376 382 Distributions to noncontrolling interest - Egypt 91 305 345 Distributions to Altus Preferred Unit limited partners 23 - - Shares repurchased - - 305 Other 46 84 92 3,155 6,048 6,489 Increase (decrease) in cash and cash equivalents $ 15$ (467) $ (954) (1)The table presents capital expenditures on a cash basis; therefore, the amounts may differ from those discussed elsewhere in this Annual Report on Form 10-K, which include accruals. Sources of Cash and Cash Equivalents Net Cash Provided by Operating Activities Operating cash flows are the Company's primary source of capital and liquidity and are impacted, both in the short term and the long term, by volatile crude oil and natural gas prices. The factors that determine operating cash flows are largely the same as those that affect net earnings, with the exception of non-cash expenses such as DD&A, exploratory dry hole expense, asset impairments, asset retirement obligation (ARO) accretion, and deferred income tax expense. Net cash provided by operating activities for the year endedDecember 31, 2020 totaled$1.4 billion , down$1.5 billion from the year endedDecember 31, 2019 . The decrease primarily reflects lower commodity prices compared to the prior year. For a detailed discussion of commodity prices, production, and operating expenses, refer to "Results of Operations" in this Item 7. For additional detail on the changes in operating assets and liabilities and the non-cash expenses that do not impact net cash provided by operating activities, refer to the Statement of Consolidated Cash Flows in the Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Proceeds from Apache Credit Facility, Net As ofDecember 31, 2020 , there were$150 million of borrowings outstanding under Apache's credit facility, which is classified as long-term debt. The Company had no borrowings under the revolver as ofDecember 31, 2019 . 45 -------------------------------------------------------------------------------- Proceeds from Altus Credit Facility, Net The initial construction ofAltus' gathering and processing assets and the exercise of its Pipeline Options for its equity interests in the Equity Method Interest Pipelines has historically required capital expenditures in excess ofAltus' cash on hand and operational cash flows. During the years endedDecember 31, 2020 and 2019,Altus Midstream borrowed$228 million and$396 million , respectively, under its revolving credit facility. With the initial midstream infrastructure construction complete and each ofShin Oak , GCX, PHP, and EPIC now in service, the Company anticipates thatAltus' existing capital resources will be sufficient to fund its continuing obligations and planned dividend program during 2021. Proceeds from Asset DivestituresThe Company recorded proceeds from non-core asset divestitures totaling$166 million and$718 million for the years endedDecember 31, 2020 and 2019, respectively. For more information regarding the Company's acquisitions and divestitures, refer to Note 2-Acquisitions and Divestitures in the Notes to Consolidated Financial Statements in Part IV set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Fixed-Rate Debt Borrowings OnAugust 17, 2020 , the Company closed offerings of$1.25 billion in aggregate principal amount of senior unsecured notes, comprised of$500 million in aggregate principal amount of 4.625% notes due 2025 and$750 million in aggregate principal amount of 4.875% notes due 2027. The senior unsecured notes are redeemable at any time, in whole or in part, at Apache's option, at the applicable redemption price. The net proceeds from the sale of the notes were used to purchase certain outstanding notes in cash tender offers, repay a portion of outstanding borrowings under the Company's senior revolving credit facility, and for general corporate purposes. OnJune 19, 2019 , Apache closed offerings of$1.0 billion in aggregate principal amount of senior unsecured notes, comprised of$600 million in aggregate principal amount of 4.250% notes dueJanuary 15, 2030 (2030 notes) and$400 million in aggregate principal amount of 5.350% notes dueJuly 1, 2049 (2049 notes). The notes are redeemable at any time, in whole or in part, at Apache's option, subject to a make-whole premium. The aggregate net proceeds of$989 million from the sale of the notes were used to purchase certain outstanding notes in cash tender offers and for general corporate purposes. Redeemable Noncontrolling Interest - Altus Preferred Unit Limited Partners OnJune 12, 2019 ,Altus Midstream LP issued and sold Series A Cumulative Redeemable Preferred Units for an aggregate issue price of$625 million in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended.Altus Midstream LP received approximately$611 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers. For more information, refer to Note 13-Redeemable Noncontrolling Interest - Altus in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Uses of Cash and Cash Equivalents Additions to Oil & Gas Property Exploration and development cash expenditures were$1.3 billion and$2.6 billion for the years endedDecember 31, 2020 and 2019, respectively. The decrease in capital investment is reflective of the Company's reduced capital program as the Company eliminated nearly all drilling and completion activities in theU.S. byMay 2020 in response to commodity price impacts stemming from the COVID-19 pandemic. A majority of the current year expenditures shifted from theCompany's Permian Basin assets to itsEgypt assets over the second half of 2020. The Company operated an average of 12 drilling rigs during 2020 compared to 23 drilling rigs during 2019. Additions to Altus Gathering, Processing, and Transmission (GPT) FacilitiesThe Company's cash expenditures for GPT facilities totaled$28 million and$327 million during 2020 and 2019, respectively, nearly all comprising midstream infrastructure expenditures incurred byAltus , which were substantially completed as ofDecember 31, 2019 .Altus management believes its existing GPT infrastructure capacity is capable of fulfilling its midstream contracts to service Apache's production fromAlpine High and any third-party customers. As such,Altus expects capital requirements for its existing infrastructure assets for 2021 and 2022 to be minimal. Leasehold and Property Acquisitions During 2020 and 2019, the Company completed leasehold and property acquisitions, primarily in thePermian Basin , for total cash consideration of$4 million and$40 million , respectively. Contributions to Altus Equity Method Interests Altus made contributions of$327 million and$501 million during 2020 and 2019, respectively, for equity interests in the Equity Method Interest Pipelines. For more information regarding the Company's equity method interests, refer to Note 6-Equity Method Interests in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. 46 -------------------------------------------------------------------------------- Acquisitions of Altus Equity Method Interests Altus made acquisitions of equity method interests totaling$671 million during the year endedDecember 31, 2019 . For more information regarding the Company's equity method interests, refer to Note 6-Equity Method Interests in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Payments on Fixed-Rate Debt OnAugust 18, 2020 , the Company closed cash tender offers for certain outstanding notes. The Company accepted for purchase$644 million aggregate principal amount of certain notes covered by the tender offers. The Company paid holders an aggregate$644 million reflecting principal, aggregate discount to par of$38 million , early tender premium of$32 million , and accrued and unpaid interest of$6 million . The Company recorded a net gain of$2 million on extinguishment of debt, including an acceleration of unamortized debt discount and issuance costs, in connection with the note purchases. During 2020, the Company purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of$588 million for an aggregate purchase price of$428 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate$168 million . These repurchases resulted in a$158 million net gain on extinguishment of debt. The net gain includes an acceleration of related discount and debt issuance costs. Additionally, onNovember 3, 2020 , Apache redeemed the$183 million of 3.625% senior notes dueFebruary 1, 2021 at a redemption price equal to 100 percent of their principal amount, plus accrued and unpaid interest to the redemption date. The repurchases were financed by borrowings under the Company's revolving credit facility. OnJune 21, 2019 , the Company closed cash tender offers for certain outstanding notes. Apache accepted for purchase$932 million aggregate principal amount of notes for approximately$1.0 billion , which included principal, the net premium to par, and an early tender premium totaling$28 million , as well as accrued and unpaid interest of$14 million . The Company recorded a net loss of$75 million on extinguishment of debt, including$7 million of unamortized debt issuance costs and discounts, in connection with the note purchases. Additionally, onJuly 1, 2019 , Apache's 7.625% senior notes in original principal amount of$150 million matured and were repaid. DividendsThe Company paid$123 million and$376 million cash dividends on its common stock for the years endedDecember 31, 2020 and 2019, respectively. In the first quarter of 2020, Apache's Board of Directors approved a reduction in the Company's quarterly dividend per share from$0.25 per share to$0.025 per share, effective for all dividends payable afterMarch 12, 2020 . Distributions to Noncontrolling Interests -Egypt Sinopec International Petroleum Exploration and Production Corporation (Sinopec) holds a one-third minority participation interest in Apache's oil and gas operations inEgypt . The Company made cash distributions totaling$91 million and$305 million to Sinopec during the years endedDecember 31, 2020 and 2019, respectively. Distributions to Altus Preferred Units limited partnersAltus Midstream LP paid cash distributions of$23 million to its limited partners holding Preferred Units for the year endedDecember 31, 2020 . No cash distributions were made during 2019. For more information regarding the Preferred Units, refer to Note 13 - Redeemable Noncontrolling Interest - Altus in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Liquidity The following table presents a summary of the Company's key financial indicators as ofDecember 31 ,: 2020 2019 (In millions) Cash and cash equivalents$ 262 $ 247 Total debt - Apache 8,148 8,170 Total debt - Altus 624 396 Total equity (deficit) (645) 4,465
Available committed borrowing capacity - Apache 2,944 4,000
Available committed borrowing capacity -
176 404 Cash and Cash Equivalents As ofDecember 31, 2020 , the Company had$262 million in cash and cash equivalents, of which approximately$24 million was held byAltus . The majority of the Company's cash is invested in highly liquid, investment-grade instruments with maturities of three months or less at the time of purchase. 47 -------------------------------------------------------------------------------- Debt As ofDecember 31, 2020 , outstanding debt, which consisted of notes, debentures, credit facility borrowings, and finance lease obligations, totaled$8.8 billion . As ofDecember 31, 2020 , current debt included$2 million of finance lease obligations. Apache intends to reduce debt outstanding under its indentures from time to time. Available Credit Facilities InMarch 2018 , the Company entered into a revolving credit facility with commitments totaling$4.0 billion . InMarch 2019 , the term of this facility was extended by one year toMarch 2024 (subject to Apache's remaining one-year extension option) pursuant to Apache's exercise of an extension option. The Company can increase commitments up to$5.0 billion by adding new lenders or obtaining the consent of any increasing existing lenders. The facility includes a letter of credit subfacility of up to$3.0 billion , of which$2.08 billion was committed as ofDecember 31, 2020 . The facility is for general corporate purposes. Letters of credit are available for security needs, including in respect ofNorth Sea decommissioning obligations. The facility has no collateral requirements, is not subject to borrowing base redetermination, and has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. As ofDecember 31, 2020 , there were$150 million of borrowings and an aggregate £633 million and$40 million in letters of credit outstanding under this facility. As ofDecember 31, 2019 , there were no borrowings or letters of credit outstanding under this facility. The £633 million in outstanding letters of credit were issued to supportNorth Sea decommissioning obligations, the terms of which required such support afterStandard & Poor's reduced the Company's credit rating from BBB to BB+ onMarch 26, 2020 . At Apache's option, the interest rate per annum for borrowings under the 2018 facility is either a base rate, as defined, plus a margin, or theLondon Inter-bank Offered Rate (LIBOR), plus a margin. Apache also pays quarterly a facility fee at a per annum rate on total commitments. The margins and the facility fee vary based upon the Company's senior long-term debt rating. AtDecember 31, 2020 , the base rate margin was 0.5 percent, the LIBOR margin was 1.50 percent, and the facility fee was 0.25 percent. A commission is payable quarterly to lenders on the face amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other charges are payable to issuing banks. The financial covenants of the credit facility require Apache to maintain an adjusted debt-to-capital ratio of not greater than 60 percent at the end of any fiscal quarter. For purposes of this calculation, capital excludes the effects of non-cash write-downs, impairments, and related charges occurring afterJune 30, 2015 . AtDecember 31, 2020 , Apache's debt-to-capital ratio as calculated under the credit facility was 32 percent. The 2018 facility's negative covenants restrict the ability of Apache and its subsidiaries to create liens securing debt on their hydrocarbon-related assets, with exceptions for liens typically arising in the oil and gas industry; liens securing debt incurred to finance the acquisition, construction, improvement, or capital lease of assets, provided that such debt, when incurred, does not exceed the subject purchase price and costs, as applicable, and related expenses; liens on subsidiary assets located outside ofthe United States andCanada ; and liens arising as a matter of law, such as tax and mechanics' liens. Apache also may incur liens on assets if debt secured thereby does not exceed 15 percent of Apache's consolidated net tangible assets, or approximately$1.7 billion as ofDecember 31, 2020 . Negative covenants also restrict Apache's ability to merge with another entity unless it is the surviving entity, dispose of substantially all of its assets, and guarantee debt of non-consolidated entities in excess of the stated threshold. InNovember 2018 ,Altus Midstream LP entered into a revolving credit facility for general corporate purposes that matures inNovember 2023 (subject toAltus Midstream LP's two, one-year extension options). The agreement for this facility, as amended, provides aggregate commitments from a syndicate of banks of$800 million . All aggregate commitments include a letter of credit subfacility of up to$100 million and a swingline loan subfacility of up to$100 million .Altus Midstream LP may increase commitments up to an aggregate$1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As ofDecember 31, 2020 and 2019, there were$624 million and$396 million , respectively, of borrowings and no letters of credit outstanding under this facility. 48 -------------------------------------------------------------------------------- The agreement forAltus Midstream LP's credit facility, as amended, restricts distributions in respect of capital to Apache and other unit holders in certain circumstances. Unless the Leverage Ratio is less than or equal to 4.00:1.00, the agreement limits such distributions to$30 million per calendar year until either (i) the consolidated net income ofAltus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the agreement, for three consecutive calendar months equals or exceeds$350.0 million on an annualized basis or (ii)Altus Midstream LP has a specified senior long-term debt rating; in addition, before the occurrence of one of those two events, the Leverage Ratio must be less than or equal to 5.00:1.00. In no event can any distribution be made that would, after giving effect to it on a pro forma basis, result in a LeverageRatio greater than (i) 5.00:1.00 or (ii) for a specified period after a qualifying acquisition, 5.50:1.00. The Leverage Ratio is the ratio of (1) the consolidated indebtedness ofAltus Midstream LP and its restricted subsidiaries to (2) EBITDA (as defined in the agreement) ofAltus Midstream LP and its restricted subsidiaries for the 12-month period ending immediately before the determination date. The Leverage Ratio as ofDecember 31, 2020 was less than 4.00:1.00. The terms ofAltus Midstream LP's Series A Cumulative Redeemable Preferred Units also contain certain restrictions on distributions in respect of capital, including the common units held by Apache and any other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation. Refer to Note 13-Redeemable Noncontrolling Interest -Altus
set
forth in Part IV, Item 15 of this Annual Report on Form 10-K for further information. In addition, the amount of any cash distributions toAltus Midstream LP by any entity in which it has an interest accounted for by the equity method is subject to such entity's compliance with the terms of any debt or other agreements by which it may be bound, which in turn may impact the amount of funds available for distribution byAltus Midstream LP to its partners.The Altus Midstream LP credit facility is unsecured and is not guaranteed by Apache or any of Apache's other subsidiaries. There are no clauses in either the agreement for Apache's 2018 credit facility or forAltus Midstream LP's 2018 credit facility that permit the lenders to accelerate payments or refuse to lend based on unspecified material adverse changes. These agreements do not have drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. However, each agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and other breaches, and if a borrower or any of its subsidiaries defaults on other indebtedness in excess of the stated threshold, is insolvent, or has any unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and terminate lending and issuance commitments under the applicable agreement if Apache orAltus Midstream LP , as applicable, undergoes a specified change in control or any borrower has specified pension plan liabilities in excess of the stated threshold. Each ofApache andAltus Midstream LP was in compliance with the terms of its 2018 credit facility as ofDecember 31, 2020 . There is no assurance of the terms upon which potential lenders under future credit facilities will make loans or other extensions of credit available toApache or its subsidiaries or the composition of such lenders. There is no assurance that the financial condition of banks with lending commitments toApache orAltus Midstream LP will not deteriorate. We closely monitor the ratings of the banks in our bank groups. Having large bank groups allows the Company to mitigate the potential impact of any bank's failure to honor its lending commitment. Commercial Paper Program Apache's$3.5 billion commercial paper program, which is subject to market availability, facilitatesApache borrowing funds for up to 270 days. As a result of downgrades inApache's credit ratings during 2020, the Company does not expect that its commercial paper program will be cost competitive with its other financing alternatives and does not anticipate using it under such circumstances. As ofDecember 31, 2020 and 2019, the Company had no commercial paper outstanding. 49 -------------------------------------------------------------------------------- Contractual Obligations The following table summarizes the Company's contractual obligations as ofDecember 31, 2020 . For additional information regarding these obligations, refer to Note 9-Debt and Financing Costs and Note 11-Commitments and Contingencies in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. On-Balance Sheet
Off-Balance Sheet
Debt, at Apache Credit Altus Credit Interest Finance Operating Purchase Obligations by Period Face Value Facility(1) Facility(1) Payments Leases(2) Leases(3) Obligations(4) Total(5) (In millions) 2021 $ - $ - $ -$ 415 $ 3$ 120 $ 236$ 774 2022 213 - - 397 3 70 203 886 2023 123 - 624 392 3 33 203 1,378 2024 - 150 - 391 4 27 160 732 2025 500 - - 391 4 7 159 1,061 Thereafter 7,216 - - 4,404 29 25 600 12,274 Total$ 8,052 $ 150 $ 624$ 6,390 $ 46$ 282 $ 1,561$ 17,105 (1)Includes outstanding principal amounts atDecember 31, 2020 . This table does not include future commitment fees, interest expense, or other fees on the Company's credit facilities because they are floating rate instruments, and management cannot determine with accuracy the timing of future loan advances, repayments, or future interest rates to be charged. (2)Amounts represent the Company's finance lease obligation related to the Company'sMidland, Texas regional office building. (3)Amounts represent future lease payments associated with oil and gas operations inclusive of amounts billable to partners and other working interest owners. Such payments may be capitalized as a component of oil and gas properties and subsequently depreciated, impaired, or written off as exploration expense. (4)Amounts represent any agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. These include minimum commitments associated with take-or-pay contracts, NGL processing agreements, drilling work program commitments, and agreements to secure capacity rights on third-party pipelines. Amounts exclude certain product purchase obligations related to marketing and trading activities for which there are no minimum purchase requirements or the amounts are not fixed or determinable. Total costs incurred under take-or-pay and throughput obligations were$120 million ,$111 million , and$132 million for 2020, 2019, and 2018, respectively. (5)This table does not include the Company's liability for dismantlement, abandonment, and restoration costs of oil and gas properties or pension or postretirement benefit obligations. For additional information regarding these liabilities, please see Notes 8 - Asset Retirement Obligation and Note 12 - Retirement and Deferred Compensation Plans , respectively, in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K.Apache is also subject to various contingent obligations that become payable only if certain events or rulings were to occur. The inherent uncertainty surrounding the timing of and monetary impact associated with these events or rulings prevents any meaningful accurate measurement, which is necessary to assess settlements resulting from litigation.Apache's management believes that it has adequately reserved for its contingent obligations, including approximately$2 million for environmental remediation and approximately$70 million for various contingent legal liabilities. For a detailed discussion of the Company's lease obligations, purchase obligations, environmental and legal contingencies, and other commitments, please see Note 11-Commitments and Contingencies and Note 12 - Ret irement and Deferred Com pens ation Plans in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. As further described above under "Capital and Operational Outlook,"Altus Midstream LP and/or its subsidiaries have exercised four of the five Pipeline Options to acquire equity interests in the Equity Method Interest Pipelines. The fifth Pipeline Option to acquire an equity interest in a separate intra-basin NGL pipeline was not exercised and expired onMarch 2, 2020 . Following the exercise of each Pipeline Option,Altus Midstream LP and/or its subsidiaries may be required to fund future capital expenditures for its equity interest share in the development of the applicable pipeline. The Company estimates thatAltus , based on its equity interests in each pipeline, will incur approximately$30 million of additional capital contributions for its equity interests during 2021. 50 -------------------------------------------------------------------------------- With respect to oil and gas operations in theGulf of Mexico , theBureau of Ocean Energy Management (BOEM) issued a Notice to Lessees (NTL No. 2016-N01) significantly revising the obligations of companies operating in theGulf of Mexico to provide supplemental assurances of performance with respect to plugging, abandonment, and decommissioning obligations associated with wells, platforms, structures, and facilities located upon or used in connection with such companies' oil and gas leases. While the NTL was paused in mid-2017 and is currently listed on BOEM's website as "rescinded," if reinstated, the NTL will likely require thatApache provide additional security to BOEM with respect to plugging, abandonment, and decommissioning obligations relating toApache's current ownership interests in variousGulf of Mexico leases. The Company is working closely with BOEM to make arrangements for the provision of such additional required security, if such security becomes necessary under the NTL. Additionally, the Company is not able to predict the effect that these changes might have on counterparties to whichApache has soldGulf of Mexico assets or with whomApache has joint ownership. Such changes could cause the bonding obligations of such parties to increase substantially, thereby causing a significant impact on the counterparties' solvency and ability to continue as a going concern. Potential Asset Retirement Obligations The Company has potential exposure to future obligations related to divested properties.Apache has divested various leases, wells, and facilities located in theGulf of Mexico where the purchasers typically assume all obligations to plug, abandon, and decommission the associated wells, structures, and facilities acquired. One or more of the counterparties in these transactions could, either as a result of the severe decline in oil and natural gas prices or other factors related to the historical or future operations of their respective businesses, face financial problems that may have a significant impact on their solvency and ability to continue as a going concern. If a purchaser of ourGulf of Mexico assets becomes the subject of a case or proceeding under relevant insolvency laws or otherwise fails to perform required abandonment obligations,Apache could be required to perform such actions under applicable federal laws and regulations. In such event,Apache may be forced to use available cash to cover the costs of such liabilities and obligations should they arise. In 2013, the Company sold its Gulf of Mexico Shelf operations and properties (Transferred Assets) toFieldwood Energy LLC (Fieldwood ). Under the terms of the purchase agreement, the Company received cash consideration of$3.75 billion andFieldwood assumed$1.5 billion of discounted asset abandonment liabilities as of the disposition date. In respect of such abandonment liabilities,Fieldwood posted letters of credit in favor of the Company (Letters of Credit) and established a trust account (Trust A), which is funded by a 10 percent net profits interest depending on future oil prices and of which the Company is the beneficiary. OnFebruary 14, 2018 ,Fieldwood filed for protection under Chapter 11 of theU.S. Bankruptcy Code. In connection with the 2018 bankruptcy,Fieldwood confirmed a plan under which the Company agreed, inter alia, to accept bonds in exchange for certain of the Letters of Credit. Currently, the Company holds two bonds (Bonds) and the remaining Letters of Credit to secureFieldwood's asset retirement obligations (AROs) on the Transferred Assets as and when such abandonment and decommissioning obligations are required to be performed over the remaining life of the Transferred Assets. OnAugust 3, 2020 ,Fieldwood again filed for protection under Chapter 11 of theU.S. Bankruptcy Code.Fieldwood has submitted a plan of reorganization, and the Company has been engaged in discussions withFieldwood and other interested parties regarding such plan. If approved by the bankruptcy court, the submitted plan would separate the Transferred Assets into a standalone company, and proceeds of production of the Transferred Assets will be used for the AROs. If the proceeds of production are insufficient for such AROs, thenApache expects that it may be required by the relevant governmental authorities to perform such AROs, in which case it will apply the Bonds, remaining Letters of Credit, and Trust A to pay for the AROs. In addition, after such sources have been exhausted,Apache has agreed to provide a standby loan of up to$400 million for the new company to perform decommissioning, with such standby loan secured by a first and prior lien on the Transferred Assets. If the foregoing is insufficient, the Company may be forced to use available cash to cover any additional costs it incurs for performing such AROs. Insurance ProgramApache maintains insurance policies that include coverage for physical damage to its assets, general liabilities, workers' compensation, employers' liability, sudden and accidental pollution, and other risks. The Company's insurance coverage is subject to deductibles or retentions that it must satisfy prior to recovering on insurance. Additionally, the Company's insurance is subject to policy exclusions and limitations. There is no assurance that insurance will adequately protectApache against liability from all potential consequences and damages. Further, the Company does not have coverage in place for a variety of other risks includingGulf of Mexico named windstorm and business interruption. 51 -------------------------------------------------------------------------------- Current insurance policies covering physical damage to the Company's assets provide up to$1 billion in coverage per occurrence. These policies also provide sudden and accidental pollution coverage. The Company's current insurance policies covering general liabilities provide$500 million in coverage, scaled toApache's interest. Service agreements, including drilling contracts, generally indemnifyApache for injuries and death of the service provider's employees as well as subcontractors hired by the service provider.Apache purchases multi-year political risk insurance fromU.S. International Development Finance Corporation (DFC), successor toOverseas Private Investment Corporation (OPIC), and highly-rated insurers covering a portion of its investments inEgypt for losses arising from confiscation, nationalization, and expropriation risks.The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC, an agency of theIslamic Development Bank ) reinsures DFC. In the aggregate, these insurance policies provide up to$750 million of coverage, subject to policy terms and conditions and a retention of approximately$500 million .Apache has an additional insurance policy with DFC, which, subject to policy terms and conditions, provides up to$300 million of coverage through 2024 for losses arising from (1) non-payment by EGPC of arbitral awards covering amounts owedApache on past due invoices and (2) expropriation of exportable petroleum in the event that actions taken by the government ofEgypt preventApache from exporting our share of production.The Multilateral Investment Guarantee Agency (MIGA), a member of theWorld Bank Group , provides$150 million in reinsurance to DFC. Future insurance coverage for the Company's industry could increase in cost and may include higher deductibles or retentions. In addition, some forms of insurance may become unavailable or unavailable on terms economically acceptable. Critical Accounting EstimatesApache prepares its financial statements and the accompanying notes in conformity with accounting principles generally accepted inthe United States of America , which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes.Apache identifies certain accounting policies involving estimation as critical based on, among other things, their impact on the portrayal ofApache's financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting estimates cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the Company's critical accounting estimates. The following is a discussion ofApache's most critical accounting estimates. Reserves Estimates Proved oil and gas reserves are the estimated quantities of natural gas, crude oil, condensate, and NGLs that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing conditions, operating conditions, and government regulations. Proved undeveloped reserves include those reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Undeveloped reserves may be classified as proved reserves on undrilled acreage directly offsetting development areas that are reasonably certain of production when drilled, or where reliable technology provides reasonable certainty of economic producibility. Undrilled locations may be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time. Despite the inherent imprecision in these engineering estimates, the Company's reserves are used throughout its financial statements. For example, since the Company uses the units-of-production method to amortize its oil and gas properties, the quantity of reserves could significantly impact DD&A expense. A material adverse change in the estimated volumes of reserves could result in property impairments. Finally, these reserves are the basis forApache's supplemental oil and gas disclosures. For more information regardingApache's supplemental oil and gas disclosures, Refer to Note 1 8 - Supplem ental Oil and Gas Disclosures (Unaudit ed ) in the Notes to Consolidated Financial Statements set forth in Part IV, Item 15 of this Annual Report on Form 10-K. Reserves are calculated using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, held flat for the life of the production, except where prices are defined by contractual arrangements. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation.Apache has elected not to disclose probable and possible reserves or reserve estimates in this filing. 52 -------------------------------------------------------------------------------- Oil and Gas Exploration CostsApache accounts for its exploration and production activities using the successful efforts method of accounting. Costs of acquiring unproved and proved oil and gas leasehold acreage are capitalized. Costs of drilling and equipping productive wells, including development dry holes, and related production facilities are also capitalized. Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Costs associated with drilling an exploratory well are initially capitalized, or suspended, pending a determination as to whether proved reserves have been found. On a quarterly basis, management reviews the status of all suspended exploratory well costs in light of ongoing exploration activities and determines whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are recorded as dry hole expense and reported in exploration expense in the statement of consolidated operations. Otherwise, the costs of exploratory wells remain capitalized. Long-Lived Asset Impairments Long-lived assets used in operations, including proved oil and gas properties and GPT assets, are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future cash flows expected to be generated by an asset. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. If there is an indication that the carrying amount of an asset group may not be recovered, the asset is assessed by management through an established process in which changes to significant assumptions such as prices, volumes, and future development plans are reviewed. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is assessed by management using the income approach. Under the income approach, the fair value of each asset group is estimated based on the present value of expected future cash flows. The income approach is dependent on a number of factors including estimates of forecasted revenue and operating costs, proved reserves, the success of future exploration for and development of unproved reserves, expected throughput volumes for GPT assets, discount rates, and other variables. Key assumptions used in developing a discounted cash flow model described above include estimated quantities of crude oil and natural gas reserves; estimates of market prices considering forward commodity price curves as of the measurement date; and estimates of operating, administrative, and capital costs adjusted for inflation. The Company discounts the resulting future cash flows using a discount rate believed to be consistent with those applied by market participants. To assess the reasonableness of our fair value estimate, when available management uses a market approach to compare the fair value to similar assets. This requires management to make certain judgments about the selection of comparable assets, recent comparable asset transactions, and transaction premiums. Although the fair value estimate of each asset group is based on assumptions believed to be reasonable, those assumptions are inherently unpredictable and uncertain, and actual results could differ from the estimate. Negative revisions of estimated reserves quantities, increases in future cost estimates, divestiture of a significant component of the asset group, or sustained decreases in crude oil or natural gas prices could lead to a reduction in expected future cash flows and possibly an additional impairment of long-lived assets in future periods. Over the past several years, the Company has experienced substantial volatility in commodity prices, which impacted its future development plans and operating cash flows. As such, material impairments of certain proved oil and gas properties and gathering, processing, and transmission facilities were recorded in 2020, 2019, and 2018. For discussion of these impairments, see "Fair Value Measurements" of Note 1-Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. Asset Retirement Obligation (ARO) The Company has significant obligations to remove tangible equipment and restore land or seabed at the end of oil and gas production operations.Apache's removal and restoration obligations are primarily associated with plugging and abandoning wells and removing and disposing of offshore oil and gas platforms in theNorth Sea andGulf of Mexico . Estimating the future restoration and removal costs is difficult and requires management to make estimates and judgments. Asset removal technologies and costs are constantly changing, as are regulatory, political, environmental, safety, and public relations considerations. 53
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ARO associated with retiring tangible long-lived assets is recognized as a liability in the period in which the legal obligation is incurred and becomes determinable. The liability is offset by a corresponding increase in the underlying asset. The ARO liability reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated withApache's oil and gas properties and other long-lived assets. The Company utilizes current retirement costs to estimate the expected cash outflows for retirement obligations. Inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit-adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Income Taxes The Company's oil and gas exploration and production operations are subject to taxation on income in numerous jurisdictions worldwide. The Company records deferred tax assets and liabilities to account for the expected future tax consequences of events that have been recognized in its financial statements and tax returns. Management routinely assesses the ability to realize the Company's deferred tax assets. If management concludes that it is more likely than not that some portion or all of the deferred tax assets will not be realized under accounting standards, the tax asset would be reduced by a valuation allowance. Numerous judgments and assumptions are inherent in the determination of future taxable income, including factors such as future operating conditions (particularly as related to prevailing oil and gas prices). The Company regularly assesses and, if required, establishes accruals for uncertain tax positions that could result from assessments of additional tax by taxing jurisdictions in countries where the Company operates. The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. These accruals for uncertain tax positions are subject to a significant amount of judgment and are reviewed and adjusted on a periodic basis in light of changing facts and circumstances considering the progress of ongoing tax audits, case law, and any new legislation. The Company believes that its accruals for uncertain tax positions are adequate in relation to the potential for any additional tax assessments.
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